Abstract

A fundamental issue in the economics of uncertainty is how individuals process information and make choices under uncertainty. In a recent analysis of the findings on risk perception, Kenneth Arrow (1982) concluded that the evidence regarding individual
rationality was, at best, quite mixed. A prominent example of apparent irrationality of
actual consumer behavior is that consumers, who presumably are risk averse, have failed
to purchase heavily subsidized federal flood insurance. In the case of the market for
hazardous jobs, which is the focus of this study, Viscusi (1979) found that workers'
risk perceptions were positively correlated with the industry risk and that workers who
perceived job risks received compensating wage differentials. Nevertheless, workers in
high risk jobs displayed behavior consistent with an adaptive response in which workers
accept jobs whose risks are not fully understood, learn about these risks based on their
on-the-job experiences, and then quit if these experiences are sufficiently unfavorable given the wage for the job.